igeria is now only second to the United States in terms of bitcoin trading, according to bitcoin exchange Paxful. According to blockchain research firm Chainalysis, the dollar volume of cryptocurrency received by Nigerian users was $2.4 billion in May, up from $684 million in December. And, given that many trades are untraceable by experts, the true volume of crypto movements through Africa’s greatest economy is likely to be far larger.
The astonishing emergence of cryptocurrencies in Nigeria has been spurred by a variety of circumstances, including political repression, currency regulations, and high inflation. The government was alarmed, and in February it outlawed cryptocurrency transactions through regulated banks. It proposed a pilot program for a new government-controlled digital currency in late July, with the goal of reducing the incentives for people to use unregulated cryptocurrency.
However, these safeguards have had minimal effect on trading, with exchanges reporting a year-over-year increase in transactions.
Nigeria’s experience can be used by governments all around the world, as several are currently considering how to regulate digital currencies. Rishi Sunak, Britain’s chancellor, is considering launching a central-bank-controlled equivalent, dubbed Britcoin. In order to tackle money laundering, EU regulators have outlined proposals to make digital currencies more traceable. Following a crackdown by the authorities in rural China, rows of computers used to manufacture bitcoin through a computational process known as “mine” are being turned off. In May, the ruling party put a stop to all transactions.
Other countries, including Egypt, Turkey, and Ghana, have attempted to regulate cryptocurrency trading, fearful of large-scale transfers of digital funds outside of their regulatory jurisdiction.
Nigeria is poised for digital finance because it has one of the world’s youngest populations. Pyramid schemes are becoming increasingly popular as people hunt for ways to get out of poverty.
Many people engage in foreign currency trading on a daily basis. Remittances into Nigeria from overseas workers, estimated to be worth more than $17 billion by 2020, have played a part, has the ability of digital currencies to protect against exchange rate changes. In the last five years, the value of the Nigerian naira against the US dollar has dropped by over 30%.
Politics play a crucial role, as well. Cryptocurrencies are viewed by some as an essential defence against government repression.
Nigeria was shaken by the greatest protests in decades last October, as tens of thousands marched against police brutality and the notorious SARS Police Unit. Security personnel beat demonstrators and deployed water cannon and teargas on them during the “#EndSars” protests. On the 20th of October, more than 70 demonstrators were slain around the country, with at least 24 of them shot dead at the Lekki tollgate in Lagos.
The crackdown had a monetary component as well. Civil society organizations, protest groups, and individuals in favor of the demonstrations whose bank accounts were unexpectedly suspended were soliciting donations to liberate protesters or provide demonstrators with food and first aid care.
The Feminist Coalition, a group of 13 young women who were formed during the protests and generated finances for protest groups and supported demonstration efforts, gained national notice. When the women’s accounts were also banned, the organization began accepting bitcoin donations, eventually accumulating $150,000 for its fighting fund in this way.
The FemCo bitcoin donation page was reshared by Jack Dorsey, the founder of Twitter and a vocal proponent of cryptocurrencies. This drew the ire of Nigeria’s government, which suspended Twitter in the country in May.
According to Adewunmi Emoruwa, founder of Gatefield, a public policy organization that provided funding to journalists covering the protests, the spectacle of young people openly critical of government leaders effortlessly maneuvering through constraints startled the country’s political establishment.
“I believe that #EndSars is the driving force behind some of the government’s decisions,” he stated. “It created fear. They noticed, for example, that individuals may choose to mobilize without using government structures and organizations. It sent shockwaves, and those shockwaves are still reverberating.”
Gatefield’s bank accounts were suspended during the protests, but they were reactivated earlier this year after a court declared the restriction unjustified.
The incident reaffirmed many Nigerians’ desire to protect themselves from arbitrary government actions. Many businesses now retain a portion of their funds in cryptocurrency.
A major figure in one civil society organization, whose accounts were also momentarily banned in October, spoke anonymously to prevent retaliation from the authorities, saying that digital currencies were now a critical insurance against unfriendly government actions.
“We hold some securities in crypto – not a lot, but enough to cover us,” they explained. “We were fortunate enough to be able to pay payroll when the embargo was imposed. This way, if something like that happens, we will be able to keep paying our employees.”
The Nigerian Central Bank replied in February by instructing banks to shut the accounts of all cryptocurrency users. Financial institutions would be required to “identify persons and/or institutions” involved in crypto transactions, or risk punishment.
The restriction was first seen as a setback for bitcoin brokers who relied on commercial banks to handle transactions between sellers and purchasers. Many users, however, discovered ways to go about it, according to Marius Reitz, Africa General Manager of Luno, a bitcoin trading site.
The authorities are well aware that they have no control over the situation, and their fear stems from the fact that they have never been in this situation before.
“A lot of trading activity has been pushed underground,” Reitz said, “which means many Nigerians are now relying on less safe, less transparent over-the-counter methods, as well as Telegram and WhatsApp groups, where people deal directly with each other.” Cryptocurrency trade has become more difficult to track and less secure as a result of the ban. “This also implies that regulators have less sight and control over the market, which might put consumers at danger of being defrauded.”
Several platforms have adapted and evolved as well, continuing to support transactions as long as the currency being traded is not a crypto.
While some platforms saw a drop in trading, others saw a surge in demand for cryptocurrencies as a result of the crackdown, rather than a decrease. Nigerians traded 50 percent more bitcoins in the first five months of 2021 than in the same time last year, according to LocalBitcoins, a platform located in Helsinki.
In fact, the Nigerian government’s stance on cryptocurrency has been contradictory. Godwin Emefiele, the Governor of the Central Bank, told a Senate Committee that cryptocurrency was “not legal money” while announcing the February limits.
Vice-President Yemi Osinbajo, on the other hand, publicly chastised the move. “Rather than adopting a policy prohibiting cryptocurrency operations in the Nigerian financial system, we must act with knowledge rather than fear,” he stated, urging a “robust regulatory regime that is deliberate and knowledge-based.”
The Securities and Exchange Commission, a Nigerian government agency, has been more inclined to developing a more regulated environment for bitcoin transactions.
The government had progressively realized that cryptocurrencies could not be properly prevented, according to the operator of one Nigerian crypto trading platform, who spoke anonymously after being targeted by the authorities. “They realize they will not be able to stop it entirely. It’s beyond their control, and they are terrified because they are not used to being in this situation.”
A friendly reminder: The Benefits and Drawbacks of Bitcoin
Bitcoin, which was launched in 2009, was the first cryptocurrency and is still the most well-known and valued. It is a digital or virtual asset that operates outside of the regular financial system, and its popularity has grown, with an increasing number of businesses accepting it as a form of payment.
Each bitcoin is essentially a digital token with a secret key that identifies its owner to anyone on the network. Each bitcoin is effectively a consensus among all other computers on the bitcoin network that the token is real, generated by a bitcoin “miner,” and obtained through a sequence of legal transactions.
When bitcoins are spent, the entire network is informed that their ownership has been transferred. Every transaction is recorded in a permanent public ledger known as a blockchain, which underlies the entire system and allows users to track a coin’s history while also prohibiting them from spending coins they do not possess.
For bitcoin’s many supporters, the virtual system offers a number of benefits, ranging from the ability to use the blockchain to monitor items other than money to support for “smart contracts,” which run automatically when specific criteria are met.
The major advantage of bitcoin, however, is that it is decentralized, making it exceedingly resistant to censorship or regulatory control by a single body. A bitcoin payment in progress can be seen, but no one can stop it. Governments are suspicious of this since banks can freeze accounts, examine payments for money laundering, and enforce restrictions in a traditional financial system.
People have been able to conduct worldwide transfers from closed or tightly restricted economies because of the decentralized structure of cryptocurrency networks, but this has also made them a sanctuary for illegal activities ranging from cybercrime to money laundering and drug trafficking.
Another issue with bitcoins is that they are harmful to the environment. The process of awarding a bitcoin to a computer that solves a complex sequence of algorithms, known as bitcoin mining, uses a lot of energy. Miners use massive computer rigs to increase their chances of receiving bitcoins. According to the Cambridge Bitcoin Electricity Consumption Index, a program from Cambridge University that tracks the currency’s energy usage, the carbon footprint of this “mining” is now comparable to Chile’s.
Bitcoin proponents claim that mining is becoming increasingly powered by renewable energy. While the amount of energy used by bitcoin has decreased dramatically this year, there are still issues. Miners, according to environmentalists, should endeavor to set up shop wherever electricity is cheapest, which may be in areas with coal-fired power availability.